Hidden Non-Financial Risk in Credit-Based Commercial Relationships - An Empirical Study of Legal Dispute Exposure in the Swedish Construction Industry

Sammanfattning

INTRODUCTIONThe construction industry relies heavily on cross-border collaboration and trade-credit, making thesupply-chain particularly vulnerable to counterparty default. Risk is often non-financial in nature, suchas contractual disputes, which remain invisible with conventional, backward-looking financialindicators.AIMThis thesis examines the interconnected mechanisms creating and supporting the “visibility gap”between disputes and formal disclosure in Swedish construction firms.METHODThe research uses an abductive, qualitative interpretivist approach. Through a combination of a smallscalepilot study of 20 construction firms and 7 semi-structured interviews, the research manages tocapture valuable insights from experienced industry experts. The interviews included multiple creditinsurance and surety underwriters, as well as an accountant and construction-specialised lawyer.RESULTSThe findings revealed a structural reporting lag and a “disclosure paradox”. Firms were found tointentionally supress and delay dispute details believing it will protect access to credit, and futurecontracts. Vague accounting standards allow managers to exploit discretion and strategically classifysignificant disputes as remote. This causes institutionalisation in the entire industry, encouraging vaguedisclosure. External stakeholders cannot close this gap independently due to prohibitive transaction costsof extensive monitoring. Underwriters are therefore forced to “rationally simplify” by relying ontraditional financial metrics, leaving the “middle segment” particularly vulnerable.CONCLUSIONThe visibility gap is a structural problem driven by firm-level agency, industry normalisation, andtransaction cost constraints. Within international trade, this opacity shifts operational fragility acrossborders to unhedged counterparties who lack the infrastructure to deal with it. Risk must thereforedevelop towards layered, qualitative behavioural monitoring practices.